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Strategies to discuss with us

Strategies to discuss with us

May 16, 2016

Ideas to Consider and Discuss with P&L

Backdoor Roth: In our opinion Roth accounts are the greatest thing since sliced bread because Roth accounts grow Tax-Free forever. This is a great benefit. Many peoplecannot fund a Roth directly because their AGI (Adjusted Gross Income is too high) but a Roth can be funded indirectly. The indirect method is simple, a non-deductible contribution is made to a Traditional IRA account and then converted to a Roth account. This method is best used when there are no other traditional IRA accounts. If there are other traditional IRAs a calculation has to be performed and part of the conversion might be taxable. Bottom line, everyone should consider a Roth, don’t overlook this great strategy.

 HSAs – Health Savings accounts are even better than sliced bread and better than a Roth. You are required to have a high-deductible Medical plan in order to have a HSA. HSAs have a triple advantage:

  • Tax write off which lowers the income tax for Federal & State
  • Tax Free compounded Growth. Assets can be invested for long term growth.
  • There is no limit for reimbursements. This is not a “Use it or Lose it” proposition like a FSA.
  • Money comes out tax free. In effect Pre-Tax money that never gets taxed.

For more information a good resource web site is

 I-Bonds – Everyone should own Bonds as part of a diversified portfolio. I-Bonds are bonds are issued by the US Government and interest paid based on the Inflation rate. The interest rate is determined every May and November 1st. The great advantages are:

  • Guaranteed by the US Government. Can’t lose principle.
  • Based on inflation rate, no loss of earning power due to inflation
  • Tax-deferred until redeemed.
  • No fees or management charges. Buy directly from the government
  • Very liquid. Have to hold for 1 year. If cashed in during 1-5 years, penalty loss of 90 days interest.
  • Limited to $10K annual purchase per person. Minimum purchase is $25 and purchases can be scheduled.
  • Directly linked to checking or savings account for purchase and redemption.

For more information the official government web site is www.TreasuryDirect.Gov

RMDs – Taxpayers are required to take RMDs (Required Minimum Distributions) starting at age 70.5. As part of the Congressional Tax Act at the end of 2015, Congress has made permanent a great tax savings strategy of directly contributing RMDS to Charitable Organizations (such as churches). The great advantage of this strategy is:

  • Charitable deductions can only be claimed if you itemize. This strategy allows a dollar for dollar income reduction.
  • Less of Social Security income may be subject to Federal Income Tax.
  • Since AGI is lowered, minimum tax calculation floors are lowered which may increase deductions.

529s - Depending on State of Residency, you might be eligible for a tax credit or deduction. In Illinois by contributing to a Bright Start of Bright Directions 529 a married couple can contribute up to $20K per year which will produce a $750 tax savings on the Illinois Tax Return. After contribution and after tax savings the account can be moved once per year to another state’s 529 if you believe the other 529 offers better performance. Also it is never too late to contribute. A contribution can be made, tax savings obtained, and then the amount can be immediately withdrawn to pay current education costs. Is it any wonder why the State of Illinois has budget issues?

Rental Activity - This may be a great way to grow assets and increase cash flow. The goal is to have positive cash flow and deferred taxes. Direct Rental ownership does come with Landlord headaches but there are alternatives such as REITS (Real Estate Investment Trusts) that might be a good fit and meet this strategy.

Annuities - Many clients have come to us AFTER they have bought an annuity and have regrets. Some times these investments can be "fixed" sometimes they turn out to be costly mistakes. (Full Disclosure, Paul has sold annuities to clients when they were in the best interests for the client.)

Qualified Dividends, Capital Gains and Non-Dividend Distributions – These types of distributions can have big tax savings. Investments that generate these type of distributions are REITS, MLPS, stocks and other investment assets. These may be very advantageous and should not be overlooked.

Timeshares – Be very careful. Many issues! If interested, I have many clients that would be thrilled to sell you theirs.

All of the above ideas are general information to encourage further discussion with P&L. Every Client is unique. Much care, thought and research are encouraged and should be done before implementing any of these strategies.